COME BACK E.T. EUROPE NEEDS YOU

Here we are in November 2011 and despite efforts by the Greek Prime Minister to personally derail the rescue, the Euro has been resolutely saved … yet again.

This time all that was needed was to increase the European Financial Stability Facility (EFSF) bailout fund from 440 billion to one trillion euro, which represents a mere € 3000 per person in the Eurozone, which is made up of about 350 million now thankful and relieved residents. These large numbers just roll off the tongue now that we have all come to regularly confront numbers that go well beyond the familiar 6 zeros for 1 million to 12 zeros for 1 trillion.

By en:User:Eugene van der Pijll; via Wikimedia Commons

It was also decided to let the Greeks off paying back 50% of their sovereign debt, which the European banks will just have to accept as their share of supporting the Greek standard of living. This was considered to be an easier solution to implement than getting the Greeks to actually pay taxes. It is important to understand that this cannot be considered a “default” as that would spook the markets and create a global financial meltdown, but should just be seen in the same light as retail pre-Xmas sales discounting, meaning we can all sleep more easily knowing that our savvy leaders have saved us from a “fate worse than death” … or should that be “a fate worse than debt”.

China was immediately identified as being ready to contribute to the EFSF bailout fund with an amount of about € 100 billion euro which is less than 5% of their foreign exchange reserves currently sitting at about € 2.3 trillion, so really “just a drop in the China Sea” ( as we will all now have to describe small amounts).

The EFSF themselves have agreed to take a “junior tranche” of € 200 billion and thus take the first 20% of the risk away from other investors, in a very similar way that the U.S. banks were able to convert high risk toxic mortgages into AAA loans up until 2008, when it all started to unravel.
Credit Rating Agencies immediately confirmed the EFSF Fund’s AAA rating so everything must be OK this time around, as these Agencies have all proved themselves to be so accurate and believable.

The Chinese are keen to invest in the EFSF, even though it will not give them a great return, as it will establish them as a responsible major world power and will also enable them to protect their export markets, as there is little benefit to the Chinese economy to have a bankrupt Eurozone. It is also important for the Chinese to keep the euro alive as a counterweight to the US dollar, thus ensuring that no one currency can overwhelm the Chinese Yuan (Renminbi).

Author: Elyyo; via Wikimedia Commons

It will also be an opportune time for the Chinese to ask for the removal of the European arms embargo, as it would be hard to keep denying our benefactor access to life’s basics such as modern weaponry.

As China will still have over € 2 trillion to play with, it will also put them in a strong position to buy up some interesting European assets as Governments try to raise much needed funds from some serious privatisation moves.
Not bad for a communist regime which only recently started moving towards “free market” reforms.

The only question that now remains is … Where does the other € 700 billion come from ?

If we look at the foreign exchange reserves of other potential investors we see the following in the top 5 … Japan € 800 billion, Russia € 370 B, Saudi € 325 B, Brazil € 250 B, India € 220 B.
These 5 therefore have a total of about € 2 trillion in foreign exchange reserves, and if they were willing and able to invest an average of say 5% each (also for very little return), the EFSF could raise another € 100 billion giving them a total of about € 400 billion.

I know that my calculation is just a simple layperson’s view of the problem, and that it would take some serious economists to work out the real numbers. I also know that even though € 400 billion is a decent number, but even allowing for a large error factor to compensate for my simplicity, we do seem to be a little bit short of our € 1 trillion target. Even if Germany and France could contribute another € 100 billion on their own (about 30% of their combined foreign exchange reserves of € 280 billion) we would still only be about half-way.

This would mean that as the money is not readily available here on earth, the only way to get it would be that we find some extra-terrestrial life-forms who might be keen to buy up some interests in Europe as part of a longer term colonisation program.

E.T. where are you when we need you ?

Author: Inyuki (own work); via Wikimedia Commons

However, finding E.T. may be hard to do quickly, and as the markets are still jittery and will not accept any long delays for an acceptable solution, I recommend that we should just sell Italy and the “PIGS” (Portugal, Ireland, Greece and Spain) in their entirety to the Chinese, rather than forcing them to buy up these countries in a piecemeal fashion.

This sale of the “I-pigs” ( to give it a more modern name and as a tribute to the late Steve Jobs) will also get rid of Silvio Berlusconi, who is embarrassing all of us, raise significant amounts of capital and remove the need for a bailout fund anyway as we will have gotten rid of Europe’s sick little piggies. We can then distribute the proceeds amongst those of us who are left in the 12 remaining Eurozone countries and who have been almost-nearly-just-about living within our means. This will then enable us all to rush out and buy significant amounts of Chinese manufactured goods making sure that the economic system which we have built over the last 200 years is perpetuated.

Sadly, Gerhard Schroeder called it correctly in March 1998 when he said “The euro is a sickly premature infant, the result of an overhasty monetary union.”It should finally resolve itself when we all adopt the Yuan.

Les, I wonder how much America would charge to print a Trillon Euros, they are printing Dollars all the time, I am sure they could take a small break and help Europe out with a quick Euro run. The Greeks and Italian wouldn’t mind as long as someone shows them how to fudge the books and make the loans look like assets, on their balance sheets.

Dieter, that is exactly the problem. They will just print the extra euros needed to pay wages/pensions etc., which will devalue the currency and lead to hyperinflation. The US will need to do a similar thing which means the 2 major currency regions will see massive asset devaluations ….
Not a pretty time coming up.
Les

I think you are being “ever the optimist” here ! As an old fashioned business journo, an essential job skill of mine was making the numbers add up. You knew you had a story when they didn’t ! And that’s exactly the same here. The Chinese have said they won’t play – and if they won’t the others on your list won’t play also.

I am willing to chip in €500 or so – any other takers among your readers ???

Which leaves printing presses working overtime to fill the gap……..

My gossip story of the week is an overheard remark at a smart Hampshire shooting party last weekend where one gun (boss of a security printer) said – in his cups – that they had received an order to print 500bn D Marks from the German Government………

Philip, it’s definitely interesting gossip.
I have long assumed that the Euro would survive but only in the (relatively) “wealthier” countries like Germany, France, Netherlands, Austria … maybe one or two others, but that’s all.
I totally believed that Germany would be the last to go.
Les

Philip … bugger … beyond the obvious currency meltdowns, I hate the idea of having to go back to lira, francs, pesetas, deutschemarks, guilders, drachmas etc etc … I already have to carry euro, swiss and pounds even in this “united” Europe.
Les